A Few Radical Money Moves
November 2013 - By Steve Gillman
You may not be able to use some of the strategies suggested
here, or you may not want to use them. Hey, we are all a bit
different in what we want and what we can comfortably do. But
in any case, here are a few of the more radical money moves that
have worked for some people, including myself. You'll see how
I paid off my first mortgage, paid cash for the next home, and
bought used furniture as an investment. Though all the ideas
here may not get you excited, if you want to really change your
financial situation, one or two of them might be worth trying
Pay Cash for a House
I might as well start with the strategy least likely to be
used by most people. Yes, many readers will say this is not possible,
and that will be true for some. But there was a stronger argument
for that position when home prices were rising faster than you
could save the money. Since prices have fallen, and now that
price increases are unlikely to be as fast as in the past, you
just might be able to save to pay cash. In any case, if you get
to $30,000 in your savings account and see prices starting to
heat up, you can always change your strategy and get the usual
mortgage loan, and you'll have a decent down payment.
Now, how do you really buy a home for cash? We did it 2002
when we moved to Montana, and our story demonstrates one important
principle: you can buy small and work your way up over the years.
We paid $17,500 cash for a perfectly livable two-bedroom home
in a beautiful little mountain town. That isn't possible in too
many areas today, and not everyone can move to where homes are
cheaper, so we'll look at a more likely scenario.
I'll use Port Charlotte, Florida as an example, because we
live near there at the moment, and we have even looked into buying
a house there. In fact, we rejected a counter-offer of $40,000
on a ready-to-live-in 2-bedroom home because there are so many
available for less than that (we had offered $38,000). Now, let's
say a young couple there pays $850 monthly to rent a nice house,
but they want to own one. Perhaps when their lease is up they
can find a smaller house that rents for $600 per month (they
exist, and there are no really bad parts to the town in my opinion).
With that savings and a few tweaks to their budget they might
start setting aside $600 per month. In six years they would have
saved $43,200. Though prices will have risen, they might be able
to pay $38,000 cash for a fixer-upper and do the work themselves
to keep the total cost to less than $43,000.
Of course, you may need to be in a certain area for your job,
so this strategy might not work for you. But in some areas your
savings might get you into a mobile home on property within five
or six years. On land they appreciate like other homes, by the
way; one that I bought for $19,000 my wife and I later sold for
$45,000. In any case, you would own something free and clear
with no mortgage loan payment. Of course you have to pay taxes
and insurance, utilities and maintenance, but let's say that
you are spending $400 less per month than when you were renting.
Maybe at this point, with a few tweaks to that budget, you can
start to set aside $700 per month. Five years down the road,
when you add those savings to the value of the place you bought,
you might be ready for an upgrade. Never having a single house
payment is something worth considering. It sure makes you feel
better when times are tough.
Pay as You Go for College
Loans are not always necessary for college. They aren't always
a bad idea, but they aren't always a good one either. You can
work to save before you go, work as you go, and take time off
if necessary to earn more money to pay for those classes. Even
if it meant graduating a year or two later, wouldn't it be nice
to have no debt hanging over you when you are done? This is easier
if you attend a lower-cost college of course, but you can do
that at first and then do the last year at a more prestigious
Save as Much as You Spend
Let's say you make $58,000, and take home $50,000 after taxes.
Can you live on $25,000 and bank the other $25,000 for a future
business, retirement or to someday climb Mount Everest? Perhaps
you can if you bought your house for cash, and didn't use loans
to get through college. The point here isn't to deny yourself
the usual comforts of life, but if you happen to have any big
goals, saving half of what you make will get you there sooner,
and that might be more important to you than a nicer home or
more nights eating out. This would be one of the more radical
financial moves people could make, but it is probably possible
for quite a few people if the intention and work is there.
Never Have Credit Card Debt
After 25 years of having credit cards, I still don't pay interest
on them because I pay off the balance every month. I did use
a cash advance once, and paid 4.9% interest (it was a special),
but only because I loaned the money out at 9% interest. Here's
something to think about: If you run balances on your cards you
pay more for everything you buy with them, and if you spend a
lifetime paying much more than a cash buyer for everything you
buy, you get to buy less than he does. Money doesn't do a thing
for you except through what you get for it. Wouldn't you prefer
to get more for it throughout your life, instead of having the
illusion of getting more by getting a few of those things right
now? Wait and pay cash.
Get Rid of a Car
It is not always possible to live without a car if you are
in a town without public transportation. But if you have two
cars you can find a way to get rid of one. Even a car that has
no loan on it can cost a few thousand dollars per year to operate.
That's enough to fund an IRA or take a trip to Spain -- every
year. Unless a car is crucial to your work or your identity and
you have no other important goals, at least consider dumping
one of them, and maybe even the only car you have. Money moves
like these free up enough income to create a world of new opportunities
that you might not have thought of.
Rent Rooms in Your Home
This one is definitely not for everyone, but when I did it
I was single and it paid off the mortgage, leaving me living
for free and with income. As a result, I almost never worked
a full-time job, and I traveled often. You can learn more about
this idea on the following website (which consists of a free
book that I used to sell):
Renting Rooms in
Take a Break From Buying
What would happen if you just stopped buying things? You don't
really know, but you can find out. Of course you need food and
such, but try a few weeks or months of buying nothing unnecessary.
Make your socks last longer even. It might drive you crazy, but
it also might lead you to find activities you like better than
buying and caring for things, and the money saved can all be
spent later anyhow. One of the best things about doing this exercise
for a while is that it helps you identify what you really value
and what you wouldn't really miss, which lets you adjust your
spending habits to get more of what matters.
Buy Furniture as Insurance
This last one of these money moves is a minor one, but interesting
because it points out the different perspective that are possible.
We tend to buy furniture just because we like it, and there is
nothing wrong with that. But what if you found things that you
not only liked, but which also safeguarded your future as well?
How? By buying furniture which can be sold for more than you
paid for it.
I first stumbled upon this idea years ago when reading the
book The Millionaire Next Door. The authors mentioned
that many wealthy people buy antique furniture not only for personal
use, but also as an investment. If necessary they can sell off
their furnishings for more than what they paid for them. It's
like having money in the bank but being able to use it still
(but try to avoid nasty spills and other damage).
Now, I don't know enough about antiques to do this, nor do
I have any interest in things just because they are old. But
when we lived in Colorado my wife and I did buy higher-quality
wooden furniture at used furniture stores, thrift stores, and
rummage sales, and when we moved to Florida we sold many pieces
for more than what we paid. As I said, this is not one of the
more important strategies, but it's nice to know that, if necessary,
you can cash in the furniture in hard times.
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